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Why are house prices rising so fast in a pandemic?
- jokethrowaway 5y agoThere is definitely more demand now and the lower stamp tax helped. I wonder what's going to happen once that's over, especially if the economy won't be doing good.
- hnlmorg 5y agoWe're already seeing what happens next because any houses on the market now wont sell in time for the "stamp duty holiday". This has pushed house prices down and slowed the market. The BBC article is already out of date.
- arnvald 5y agoThere was a similar situation in the Netherlands. Normally stamp tax is 2%, but for a few months this year it was 0% for people buying their first apartment. Today I talked to agent that helped me buy my place and I asked him whether the prices finally plateaued since that tax incentive is gone now. He said they didn't, the demand is still so high that prices keep growing, even in Amsterdam where they're already very high.
- lr4444lr 5y agoHigh demand for more space due to WfH and a desire for home leisure time due to lack of venues to visit, combined with low interest rates to shore up the markets. Is this really a mystery?
- yarky 5y agoIt is when too many people can afford it.
- xnx 5y agoPlus years of low construction and now high material costs due to supply chain disruption and more boomers opting to age in place.
- stuaxo 5y agoThere seems to have been a construction boom in the last 10 years, it's just not sold to people who want to live in them, or people who even live in the country a lot of the time.
- chrisseaton 5y agoPeople generally don't want new houses here either. They have a reputation for bad quality and soullessness. Obviously there's literally no way to increase stock of 1930s houses, so the shortage is impossible to fix!
- jelsisi 5y agoSoullessness is a big thing for me. I live in the US, and to see new homes being built directly next to major roads and highways, I can't image why people would put up with the noise and smog. Most suburban homes here are made mostly of plastic, with cookie cutter designs.
- KineticLensman 5y ago> it's just not sold to people who want to live in them A vast number of UK retirement villages would like to disagree with you.
- saddlerustle 5y agoCitation needed. In almost every western city I've looked at construction rates a small fraction of what they were in the 70's, and occupancy rates are at an all time high. Construction rates in England: https://research.euro.savills.co.uk/_images/350.jpg https://research.euro.savills.co.uk/_images/350.jpg Occupancy rate in London: https://i.imgur.com/jX1OpmS.png https://i.imgur.com/jX1OpmS.png
- simonjgreen 5y agoIf you read beyond the headline you'll see that no, it's not a mystery
- raverbashing 5y agoThe map also supports that story.
- belter 5y agoIt is a mystery and a warning of a serious bubble. The bubble will grow to levels never seen in history. Future generations will be saddled with historical high taxation levels. Some Central Bankers will show up at the US Congress or European parliamentary inquiries.They will pull another Greenspan - "I had no clue how the economy really works" type of excuse while getting back to their golden retirements: https://www.theguardian.com/business/2008/oct/24/economics-creditcrunch-federal-reserve-greenspan https://www.theguardian.com/business/2008/oct/24/economics-c... For example at least commenting from an European perspective nothing makes sense: - Real wages (for example in the European Union) are decreasing or stagnant for years - Example data point for 2020 for ex: https://www.statista.com/statistics/264605/development-of-real-wages-in-eu-countries/ https://www.statista.com/statistics/264605/development-of-re... - Most companies are only alive due to governments subsiding jobs, that in reality, do not exist anymore. Ex: KLM and Air France pilots receiving some of the highest salaries in the world, while their airplanes sit on the tarmac.: https://simpleflying.com/air-france-klm-traffic-drop/ https://simpleflying.com/air-france-klm-traffic-drop/ The main issue is that very shortly, the increased debt that most countries were forced to incur will be due soon. Very soon and in, ( what else ? ), increased taxation: https://www.bloomberg.com/graphics/2021-coronavirus-global-debt/ https://www.bloomberg.com/graphics/2021-coronavirus-global-d... All this should mean most persons should thing two times before paying inflated values. Clearly is not not happening. In Europe it is common to see interviews with couples who just got into the so called property ladder. Most are actually ashamed of confirming how much they paid for the microscopic house they just purchased... - Not sure in the US, but in Europe very few young workers are able to get permanent contracts instead of temporary 2-3 years contracts. By law, most countries require those to become permanent contracts after 2-3 renewals but that is not happening. European banks in the last few years, significantly increased the requirements to qualify for a mortgage, requiring both spouses working, permanent work contracts required,minimum apportion of capital sometimes of 10% to 15 % of the value of the house. Just a minority can rely on the "Bank of Papa and Mamma". So this also fails to explain some of the bidding wars seen in the last few months. It is mostly driven by speculators flush with cheap money and central banks complete irresponsibility. It also shows another massive failure on the part of banks to perform their due diligence concerning future prospects. Cue now a US budget that throws away 100 years of economic theory and the world will be in for a very VERY rough ride: https://www.nytimes.com/2021/05/27/business/economy/biden-plan.html https://www.nytimes.com/2021/05/27/business/economy/biden-pl... Initially will be a party worthy of the scenes in the Wolf of Wall Street. The core question here is at which point does THIS matter ? : https://www.visualcapitalist.com/20-trillion-of-u-s-debt-visualized-using-stacks-of-100-bills/ https://www.visualcapitalist.com/20-trillion-of-u-s-debt-vis...
- simonh 5y agoI think there are two effects at play right now that both feed on each other. One of them is mentioned in the article, there aren't many properties actually on the market at the moment so it doesn't take many transactions or many buyers with the resources to drive up prices. The other factor is that some people did very well during the lockdown. Overall yes a lot of people suffered, but if you had a well paid job that you could do from home, and didn't need to pay for a season ticket to go to work, buy lunch, haven't spent on a big holiday, haven't been out to the theatre or restaurants, then you may well have expanded your savings quite significantly. With the low number of houses on the market, there doesn't have to be huge numbers of people in that position for them to move house prices.
- croutonwagon 5y agoYeah. The pandemic wasn’t the start of that either. The market was nearing peak numbers, akin to 2006-2007 pre crash, before the pandemic shutdowns. Partially because variable rate loans are still a thing. And the FED has kept prime rates at basically 0 since the last crash. And add in a pandemic where there’s now a desire for home office setups….
- dasudasu 5y agoI’d add fear of all the money being injected leading to high asset inflation and permanent higher prices if you don’t enter the market now.
- throw0101a 5y agoAlso: demographics. The oldest Millennials are 40, and more and more of that contingent are arriving in their 'family years', especially given the higher average ages of both marriage and pregnancy.
- adflux 5y agoLower borrowing rates are probably the most influential factor, as people can borrow more money to buy a house. Furthermore, investors are being forced into the housing market because their savings evaporate every day due to lower interest rates and inflation. There are so many investors buying and then subletting houses that the rents have actually decreased in some cities in the Netherlands
- deleted 5y ago[deleted]
- gambiting 5y agoSo here in UK it hasn't worked out quite like this - yes the interest rates are much lower, but because in general the borrowing risks have increased, banks have massively increased the deposits required. Couple years back you could get a mortgage with as little as 5% deposit, 10% to get the "good" interest rates. Nowadays it's 10-15% minimum, but if you want to see those 1% interest rates you have to put 20% down. That made it a lot more difficult to buy a house for first time buyers.
- adflux 5y ago>That made it a lot more difficult to buy a house for first time buyers. Yes, but not for investors?
- dmurray 5y agoThe explanation in the article (people are moving out of London and seeking bigger properties elsewhere in the country) doesn't match the data (prices are flat in London, up elsewhere, up overall). A move from the expensive city to cheaper regions would generally decrease house prices: the rise in the regions should be more than offset by the fall in London. So we have to look further for the reason. Perhaps the move is disproportionately driven by Londoners rich enough to have bought a second home, either temporarily or permanently, so there hasn't been selling pressure in the London market. Perhaps there's a worldwide asset bubble and low interest rates, and Northamptonshire houses are just one small part of that.
- simonjgreen 5y agoI suspect house prices rise easier than they fall, because people will not willingly sell in to a negative equity position
- ludamad 5y agoWhen doing calls to secure a mortgage, I definitely got a lot of "... And when your house appreciates in value...". On principle, I didn't want that getting to my head. Especially as I really do rather hope prices fall sharply for Canada's sake, my equity be damned. That being said, if things were down I definitely wouldn't be looking to sell
- dmurray 5y agoThis only has a small effect, though. If the median London house was bought 10 years ago, it already appreciated 50%+. Selling into a 10% slump wouldn't put anyone in negative equity.
- Majromax 5y ago> A move from the expensive city to cheaper regions would generally decrease house prices: the rise in the regions should be more than offset by the fall in London. Only if the people moving out of London owned their homes and were putting them on the market as new properties. If a renter moves out of London, it would show up in these statistics as a net increase in demand for owned housing, and any price effects would take time to percolate through via rent changes.
- abraae 5y agoWhen I lived in the UK last century, there was rampant house price inflation. It seemed to me to be at least in part due to the bizarre contractual setup where even after a vendor had accepted an offer, they could still pull out and sell to a higher bidder. This led to purchasers paying over the top, just in order to try and prevent someone else "gazumping" them. Of course we bought at the top of that cycle, and a year later our house was worth only 70% of what we paid for it. 2 of the 4 owners in our little row handed their keys to the bank and abandoned their properties as they were well under water with mortgages of significantly more than their property values. That scarred me for life and I told plenty of people along the way that prices can go down as well as up. Though with the benefit of hindsight, that's rare and houses are usually ... as safe as houses.
- thaumasiotes 5y ago> It seemed to me to be at least in part due to the bizarre contractual setup > Of course we bought at the top of that cycle, and a year later or house was worth only 70% of what we paid for it. Had the contractual setup changed over that period?
- n4r9 5y agoThere was a crash in house prices in the UK in the early nineties, which may be what OP is referring to. The govt increased interest rates up to 15% in '92 in an attempt to protect the value of sterling, causing mortgages to default and house prices to fall.
- chrisseaton 5y agoThat's nothing to do with gazumping, which is still allowed in contracts. It's due to differences in the way law sees verbal and written contracts. https://en.wikipedia.org/wiki/Gazumping#England_and_Wales https://en.wikipedia.org/wiki/Gazumping#England_and_Wales
- ImprovedSilence 5y ago
- as367 5y agoProperties are being gobbled up for any price, sight unseen, by wealthy investors flush with cheap low-interest cash, based on their expected future cash flow from renting to tenants. This is especially prevalent in the single family home market. Eventually only the super rich will be able to afford to own a home. Is this what the world economic forum meant by "You will own nothing and be happy."?
- chrisseaton 5y ago> sight unseen This is a weird phrase when you think about it. Doesn't unseen imply sight? What does 'sight unseen' mean over 'unseen'?
- Tsiklon 5y agoI think perhaps it implies that the person hasn’t viewed the property in person, over having just viewed the photographs provided on the listing. Someone who has viewed only the photos could be argued to have seen the property, yet still remain sight unseen of the property
- croon 5y agoI would assume the phrase originates from "sight" as a noun.
- deleted 5y ago[deleted]
- throwaway9980 5y agoIn this context sight has a couple of meanings. The first is like the sighting of land from a ship. The sight of the house is a glimpse of it. The second is simply the condition of the house. I might tell my kids, “I can’t stand the sight of your room right now.” Which means I am upset by viewing the condition of their messy room.
- ppf 5y agoTry explaining that to the "any death with Covid must be avoided at all costs" crowd. There is a good chance that the months preceding the global lockdown will mark the high point for all forms of progress on wage, wealth, and gender equality, and that the post-lockdown world will strongly favour the already wealthy and powerful. It really makes me mad how predictable this has all been.
- jp555 5y agoI heard there are more realtors in the US than listings. That'll do it.
- MattGaiser 5y agoAlso, middle class people are saving tons of money on everything from daycare to restaurants. I frequent personalfinancecanada and have spoken to a few co-workers about this. Plenty had 3000 a month daycare bills. Not anymore. Plenty spent 1500 a month on restaurants. Not anymore. In Canada at least, we got to the point where 30% of income was being saved. > The savings rate in the second quarter of 2020 surged to 28.2 per cent, up from 3.6 per cent before the COVID-19 pandemic struck. [0] [0] https://nationalpost.com/news/politics/household-savings-in-canada-skyrocket-during-pandemic-as-ottawa-doles-out-billions-in-emergency-benefits https://nationalpost.com/news/politics/household-savings-in-...
- LatteLazy 5y agoNot just the middle class. My lodgers used to spend 1 evening a month moving balances from one interest free credit card to another. The pandemic has meant they've paid their debt off. They suddenly asked about ISAs (British tax free savings accounts) and buying things for the house. No booze, no eating out, fewer drugs, no entertainment events, no holidays, it cuts across economic groups.
- MattGaiser 5y agoMore accurately in my comment anyone who kept their job/source of income. But yes, a lot of people are doing well in all of this.
- LatteLazy 5y agoTrue. They've both kept their jobs (I think even with furlough taking 20% of income they've been better off in cash terms).
- newsclues 5y agoLots of lower income people have been hit hard by inflation and stagnant or drops in income.
- 5y ago
- teekert 5y agoSame in the Netherlands. People couldn't spend their savings on an expensive holiday, interest is super low, demand is super high, supply is very low. So now when a house is presented online, sometimes within a day it says: Please don't respond anymore, our firm can't handle the amount of emails and phone calls. We invited 30 people/couples and then will assess. Sometimes you can engage in the bidding war without reviewing the property, of course the chance of getting it is highest if you forego any rights you may have to step away from the deal should you run into financing issues. This presents a high risk because couples opt for loaning the maximum amount they can by both working full time. 10 years ago all my friends said: "we're sticking to a property we can afford on 1 salary, for safety and if we run into trouble." It's already annoying if you have a house to sell for a ridiculous price but imagine what it's like when you are looking for your first property. Hopeless. I'm glad I live in an acceptable house, but if we were in the market of 10 years ago (when realtors would only negotiate with one person/couple at a time) I would have moved on by now, to something more rural, bigger and with more land. I feel stuck, it's crazy how different the situation is from 10 years ago. I think we just needs start building, a lot, and fast. In stead we seem to be stuck on the amount of fixed nitrogen we produces, putting a break on everything (including construction) [0]. [0] https://www.politico.eu/article/netherlands-nitrogen-headache-pollution/ https://www.politico.eu/article/netherlands-nitrogen-headach...
- adflux 5y agoEven in rural area's prices the velocity of the market is nuts. Friend of mine sold a house for 1.3 million euro in 1 week... Insanity. A few years pre 2008 it was normal for houses in that price range to be on the market for at least months
- madcows 5y ago> It's already annoying if you have a house to sell for a ridiculous price but imagine you are looking for your first property. Hopeless. Yeah, we had to "strong arm" our landlord into selling to us be essentially breaking our lease and being huge pains in the asses. That is, we refused to allow open houses and showings in June/July of last year. Basically, it was "sell to us or good luck selling some crappy tenants." It worked out though!
- christkv 5y agoMaterial prices for new builds are also rising fast. Wood prices have doubled and steel is up as well. I know this as we are looking to build a house.
- edejong 5y agoRates are persistently low preventing mass inflation which is a risk due to increased money supply. So, property is a nice holding zone, increasing demand thus increasing prices. In other words, nobody wants to hold liquid asset at the moment.
- Cthulhu_ 5y agoYup, 10-20 years ago things were a bit crazy because you could get savings accounts with 5, 6% interest. Nowadays you get nothing for putting money in savings, so people look for other locations to put their money. It's boosting the stock market and the housing market both, as does low mortgage rates (1% now, 10 years fixed) and in my country at least, a massive housing shortage.
- deleted 5y ago[deleted]
- DebtDeflation 5y agoIt will be interesting to see how long the Fed can maintain ZIRP amidst twin bubbles in equity and real estate AND an inflation rate of 3-4% and accelerating. Given that markets seem to have priced in ZIRP Forever, the slightest shift away from that will almost certainly lead to a crash.
- deleted 5y ago[deleted]
- JCM9 5y agoHousing supply isn’t something that can’t change very fast. Housing demand can. The last 18 months has seen as dramatic a shift in housing preferences as we’ve seen in a while. It’s not all up though. Prices in urban cores in some places struggled a lot while the surrounding suburbs are super hot. Being stuck inside, a rethink of how much one is in “the office” and other factors led to a sudden shift where people value their own grass, larger living spaces and such over living as close as possible to an urban center. For places with good public transit this accelerated even faster.
- Majromax 5y agoThis also implies that prices may steady (even if they don't return to "normal") over the longer term even if this demand shift continues. Many of the exurban and rural areas seeing house price increases have not historically been places of high housing demand. It's not hard to build a new house there, it's just that until recently nobody wanted to. A covid-preference-induced exodus from large cities could be the best thing possible to revitalize small towns that, a generation or two ago, saw all of their young people drawn to work opportunities in the city.
- durnygbur 5y agoExists there a country in Europe where housing is not hopeless for a salaried non-owning individual?
- Cthulhu_ 5y agoEvery European country (except maybe the tiny tax havens) has 'desireable' and 'less desireable' areas, it's usually inversely proportional to the distance to well-paying jobs though. But if you're not bound to a location for your job - a privilege that IT workers have - you can live comfortably anywhere in most countries.
- gher-shyu3i 5y agoAnother factor is money pumping by the government resulting in devaluation of currency. People want to put their money in hard assets that are resistant to inflation.
- silicon2401 5y agoOne must keep in mind foreign investors. Competition gets a lot more fierce when a whole 1/3 of properties are being purchased by rich foreign investors in China [1], let alone your local rich. While I may be looking for a home to enjoy for years and years, somebody with 10-100x my wealth or more could just be looking for somewhere to throw their money. 1: https://www.bloomberg.com/news/articles/2016-03-23/chinese-buy-one-third-of-vancouver-homes-national-bank-estimate https://www.bloomberg.com/news/articles/2016-03-23/chinese-b...
- gremlinsinc 5y agoI have to wonder... could China be buying up homes in USA to essentially de-stablize American markets? If it forces more people into poverty, it could possibly benefit the CCP.
- dariusj18 5y agoI would seriously doubt that as the intent, but I'm sure the possibility would factor into their allowing it.
- silicon2401 5y agoAbsolutely possible, crazier things have happened